Economy needs urgent attention
However much the Bush administration wants to say that America’s economic “fundamentals” are “sound,” for the long run, they definitely are not.
It’s true that the latest federal budget deficit projection is down; the second-quarter gross domestic product growth rate was bigger than expected; and poverty rates fell in 2006.
It may or may not be the case that “the panic of 2007,” induced by the collapse of the sub-prime lending market, was successfully contained by the swift action of the Federal Reserve.
Regardless of the short-term condition of the U.S. economy, the long-term condition has to be considered perilous — and both the current Congress and 2008 candidates should be required to address it.
Specifically, this summer’s collapse of the sub-prime mortgage market and the attendant plunge in credit availability and the stock market ought to serve as a double wake-up call about unregulated hedge funds and the extent to which the whole of the American economy is overleveraged — that is, in debt.
Also, the latest Census Bureau report on incomes and poverty showed modest improvements, but also warnings — dramatic increases in the number of Americans lacking health insurance and continued stagnant wages.
The four principals of the bipartisan Concord Coalition declared in a paper last month that the U.S. economy is “headed for crisis,” warning that “the next president will inherit a fiscally lethal combination of changing demographics, rising healthcare costs and falling national savings.”
Former senators Warren Rudman and Bob Kerrey, investment banker Peter Peterson and Concord president Robert Bixby were coalition members.
According to their report: “Higher saving levels today would contribute to a larger economy tomorrow and that would make the looming fiscal burden more affordable.
“Unfortunately, Americans’ personal savings rate as a percentage of disposable income has steadily declined — from more than 7 percent in the early 1990s to negative 1 percent in 2006. Net national saving, public and private combined, has plummeted from 8.5 percent of gross national income 25 years ago to less than 2 percent today.”
Another way of saying this is that the whole country is over-borrowing, over-consuming and putting itself into debt.
Individuals and families are spending more than they earn. They have been borrowing the difference from the buildup in home equity. But the “housing bubble” that permitted that has now burst. Consumer buying — the prime fuel of U.S. economic growth — is bound to stall.
Individuals are not the only ones who are over-leveraged — so are private equity funds, the U.S. government and the whole U.S. economy, which is buying so much more from abroad than it sells that the trade deficit is soaring, requiring the United States to go into debt to foreigners.
Meanwhile, both the U.S. government and the private economy as a whole have become increasingly dependent on the willingness of foreigners to lend money. If they stop, the United States is in dire straits.
And, the Census Bureau report suggests that ordinary Americans are increasingly at risk, too. A record 47 million — nearly 16 percent of the population — lack health insurance. And while median income is rising, it’s because more people are working longer hours, not because they are earning more.
As Concord’s report concluded, “No one can say when all this might end up in a crisis or what the crisis might look like. Indeed, there might be no crisis at all — just a long, slow erosion in our nation’s standard of living.
“In either case, it’s a dismal future, and doing nothing now to avoid it would be an act of fiscal and generational irresponsibility.”
Morton Kondracke is executive editor of Roll Call, the newspaper of Capitol Hill.